Just a few years ago it was believed that it was unprofitable to produce in Russia. They say it is impossible to compete with Chinese and European manufacturers. And in general: it is difficult, long and problematic. Today the picture is changing. More and more aspiring entrepreneurs are looking towards their own production, and for good reason. Let's figure out what's what.
Finding competitive advantages in the buy-sell business is becoming increasingly difficult. The market is saturated, buyers are spoiled, and even networkers are supporting them. Having your own production facilities is an excellent solution to the problem. For the phrases “Product from the manufacturer”, “Made in Russia” and “Own production”, many are ready not only to pay, but also to overpay. The buyer is tired of low-quality China that falls apart in his hands. In addition, producing goods today is no longer as difficult as it was in the last century. Modern technologies make it possible to do this without much experience. Several prejudices and myths get in the way. Let's start the article by figuring out which of them are true and which are fiction.
Cash investments
Many people think that production requires the investment of very large sums of money, because this is one of the areas with a high barrier to entry. But now in the modern world there are many opportunities to attract cash flows into your own business.
Firstly, there is such a thing as a loan. It is easy to issue and obtain from banks of the Russian Federation upon provision of the required package of documents. If your production is connected with agriculture or other activities related to import substitution, then there is a chance to get a loan on very favorable terms. To submit an application, it is necessary to prepare a number of documents: a detailed business plan, a feasibility study of the project, a certificate from the tax office confirming business activity.
You also have the opportunity to attract investments from crowdfunding platforms. To do this, you will need to review your project and convince people of its worthy future. There are quite a large number of such sites on the Internet.
It is also possible to start a business with minimal production that does not require large expenses. Do you have a garage, basement or unnecessary storage? So why not start using it in such a way that this area generates some income?
One of the richest countries in terms of production is China. For some reason, all people think that all factories in this country are giants. No, most Chinese manufacturers are small enterprises that generate good income. The majority of home-produced goods from the Middle Kingdom are supplied to Europe, America and to us, to Russia.
A comment
The term “economic method” was originally applied to construction and means a situation when an organization constructs an object for its own needs on its own, without the involvement of a contractor. With the contract construction method, the organization acts as the customer, and the construction is carried out by a professional contractor - a construction organization.
Example
A manufacturing organization decided to build a warehouse building to store purchased materials.
The decision was made to build the warehouse on our own.
This option for constructing a facility is called the “economic method” .
Example
A manufacturing organization decided to build a warehouse building to store purchased materials.
A decision was made to engage a contractor to construct a warehouse building.
This option for constructing a facility is called the “contract method” .
Example
A manufacturing organization decided to build a warehouse building to store purchased materials.
It was decided to carry out part of the work on the construction of the building on our own, and to involve a contractor for the other part of the work.
This option for constructing a facility is called “mixed method”.
The name “economic method” comes from the fact that construction is considered to be this method, when the developer becomes the owner of the object and builds it on his own. Such an object is taken into account by the developer as a fixed asset.
The economic method of construction is used by organizations that have professional construction divisions on their balance sheet. Such divisions are often referred to as “capital construction departments” (UCS), “capital construction departments” (DCS).
It should be noted that sometimes the term “economic method” is sometimes applied not only to construction performed in-house, but also to other types of work (services) performed in-house (for example, R&D performed in-house). But regulatory documents apply this term only to construction work.
The term “Economic method of construction” has been used since the times of the USSR.
What will you have to face?
It must be said that production is a type of business activity in which frequent inspections, high taxes and pressure from the authorities cannot be avoided. It is worth noting that your production must be kept clean and tidy, because no one has canceled sanitary standards. A novice businessman should pay attention to the geolocation of the future enterprise. After all, in megacities it is very difficult to find a free niche and quickly start making high profits. In this regard, small towns have much better chances.
But on the other hand, there are a huge number of consumers in megacities, which plays into the hands of the manufacturer. You also need to understand that at first your production may bring in tiny money, and sometimes not pay off at all. The entrepreneur’s endurance and his ability to complete the job are very important here.
We study competitors
It is quite difficult to create a unique product. And even in this case, somewhere in the world there may be a less perfect analogue or prototype. Accordingly, an entrepreneur needs to carefully analyze the activities of competitors. For this:
- Make a list of companies of the relevant profile in the region, country or world - depending on the scale of the business.
- Explore their range and additional services.
- Analyze the quality of the product, its advantages and disadvantages, look at customer reviews to understand why they choose this or that supplier, and why they criticize him.
- Calculate whether existing production volumes cover the needs of customers in the relevant territory. If so, think about what you need to get the required number of people to become your clients.
- Study average market prices. Think about ways to reduce product costs without losing quality or marketing moves that will make expensive products attractive to a wide range of customers.
You can also conduct marketing research among potential customers to find out their opinions about existing products, identify complaints and expectations.
Don’t forget to study information on the Internet and communicate on specialized forums.
Choosing a Niche
What to produce? To answer this question, you need to understand in what area you would like to create your own production. It's the 21st century - a time of high technology. You always have access to the World Wide Web at your fingertips, where you can find many original ideas. You just need to strain a little and understand what products are not produced in the Russian Federation and why.
Even if the product you are interested in is still produced in Russia, you should not bypass it. After all, it often happens that the main components are produced abroad. And this is a reason to organize the production of these particular parts. The main thing is to approach this issue correctly and study it thoroughly. After all, to create your own production in our country there are all the necessary components: a developed domestic and foreign market, cheap labor. Only Chinese manufacturers have to spend a lot of money on logistics. So why does it work for them, but we shouldn’t?
Construction of an object using one's own resources.
This option is quite suitable, since an analysis and assessment of the personal qualities of the two builders has been carried out.
Also, using your own strength, you will not need to pay hired labor to workers as in option No. 1. 3) Construction of the facility using frame construction technology, namely using a metal frame, then sheathing it with a wall metal profile.
This option is not suitable since welding work during the construction of a metal frame will have to be carried out in the open air, guided by the weather forecast; you should not carry out this work in the rain, in the presence of high air humidity for safety reasons. But it will not be possible to carry out welding work indoors, due to the high-quality metal structures. Also, if we take into account the characteristics of a wall metal profile, which can simply be pierced with a light blow of a knife, this object will be extremely vulnerable to vandalism and theft from ill-wishers. Plus, welding ceiling seams at height requires a lot of experience and skill from two builders. And the price of metal products is quite high compared to alternative options.
4) Construction of an object using frame technology, namely the construction of a wooden frame.
This option is not suitable for us because construction using frame technology requires a very detailed construction plan, since the frame design is quite complex. It is also planned to use heating on a long-burning solid fuel boiler and it is not worth using a wooden structure for fire safety reasons. And using fire retardant impregnations for such a large volume of wood will significantly increase the cost of the object and exceed economic limitations.
5) Construction of the facility using frame technology, namely from metal for the further use of SIP panels.
As already described in option No. 3, this option is not suitable for us, even with the further use of SIP panels. Since purchasing new SIP panels is quite expensive, due to their price. And making SIP panels with your own hands will require a lot of time and effort to make them and completely dry the product.
6) Construction of an object with a pile-screw type of foundation. Having discussed and ordered this type of work from the contractor. With ready-made piles and a turnkey foundation, using special equipment. technology.
This alternative will most likely be used, but a trial screw-in of the screw piles should be carried out initially. Since the soil at the construction site is quite rocky and has a certain degree of contamination with waste from previous construction. And difficulties may arise in screwing in the piles. Most likely, it will not be possible to perform a high-quality pile foundation due to this. Also, a pile foundation is a good option for the further construction of a metal frame or wooden structure, but not for a stone wall. Which is most likely what will be used. And the price for a turnkey foundation from a contractor for this type of work is low, but nevertheless, with this option we will have difficulty meeting the budget.
7) Construction of an object with a pile-screw foundation, with in-house production of piles, purchase of a certain amount of metal for their production and subsequent screwing of the manufactured piles in-house.
This option does not suit us. Since it will take a lot of time to make it yourself, and the process itself is quite labor-intensive, since there is no specific tool to simplify the production of piles. And renting such a tool will require considerable expenses. Also, screwing in piles on your own is a physically difficult process, and most likely it will be simply impossible. This is due to the presence of a fence near the future site of a neighboring site and the topography of the territory where the work will be carried out. And to screw in the piles you will need a large lever and the fence will not allow you to install them.
Source
Decor
Once you have decided what you will produce, you need to register the enterprise. Organizing your own production is possible within the framework of a legal entity, or a person can register as an “individual entrepreneur.” The second option is perfect for small production, while the first is relevant for medium and large enterprises. The difference between an individual entrepreneur and a legal entity is primarily determined by taxation and the cost of opening.
In order to explore which of these options is right for you, you need to make calculations that are based on several important factors:
- registration of a company;
- buying or renting a place;
- purchase or rental of tools;
- recruiting workers and paying wages at the first stage, when there is no constant revenue;
- advertising.
This way you can calculate all the expense items of your enterprise. Also, when registering, you will need to register a bank account through which transactions will take place.
Definition from regulations
The definition of the term is contained mainly in the documents of Rosstat of Russia regarding the completion of statistical reporting:
Construction and installation work (including installation and adjustment of equipment necessary for the operation of buildings, for example, installation and installation of equipment for heating, ventilation, elevators, electrical, gas and water supply systems), carried out in an economic way , includes work carried out for their own needs by the organization's own resources, including work for which the organization allocates workers for the construction of the main activity with payment of wages according to construction orders, as well as work performed by construction organizations on their own construction (not within the framework of contract agreements, but for example, during the reconstruction of their own administrative building, construction of its own production base, etc.).
When performing construction work by contract, the developer acts as a customer in relation to the contracting construction organization. When constructing using an economic method, the developer is not actually the customer
Sales of products
Selling products of one's own production is one of the final stages that brings an entrepreneur closer to making a profit. It is important to be able to correctly compose the selling price of a unit of goods, including direct manufacturing costs, overhead costs and a commodity margin, which includes a certain percentage of net profit.
To sell products of your own production, you need to open your own stores, or sell these goods through large retail outlets. Of course, the first option will bring you much more revenue, but in order to open your own stores, you will need to study this issue well and invest a large amount of money. At first, it is better to consider the second option, because you cannot yet assume whether your products will be sold at all. In this option, your main clients will be large wholesalers. This means that you will mainly sell only in large quantities, but it all depends on the area you choose and your desires. Over time, if you realize that things are going uphill, then, of course, you can think about opening your own points.
The final products of your own factory must have the necessary certificates; the products must comply with current GOSTs. It is also worth taking care of the timely registration of a license to sell goods.
Historical reference
The term “Economic method of construction” was used in pre-revolutionary Russia.
For example, in the story “Gentlemen Everyman” (1884) by the Russian writer Anton Pavlovich Chekhov (1860 – 1904):
“Firemaster. Good with. Now, therefore, you are arguing that the tower should be raised by two arshins. Fine. But if you look from that point of view and in the sense that public, so to speak, state interests are interested here, then I must note, gentlemen, that if a contractor takes on this matter, then I must keep in mind that it will cost the city twice as expensive, since the contractor will be observing his own interests here, and not the public. If we build economically , slowly, then if we put a brick, we’ll put it at fifteen rubles per thousand and delivery on fire horses and if (raises his eyes to the ceiling, as if mentally counting) and if fifty twelve-arshin logs of five vershoks. (counts).
Vowels (by an overwhelming majority of votes). Entrust the repair of the tower to Semyon Vavilych, for which purpose allocate one thousand five hundred twenty-three rubles forty-four kopecks for the first time!”
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Financial subtleties
In the process of organizing your own production, you need to be familiar with concepts such as “finished products” and “semi-finished products”.
The end product of the manufacturing process is called finished goods. It must meet several conditions:
- be fully equipped and ready for sale;
- comply with state standards;
- have a document that certifies its quality.
Finished products from production must be delivered to the warehouse and reported to the MOL (materially responsible person).
Semi-finished products of our own production are those products that have already passed the stages of manipulation, but are subject to additional processing. In accounting, semi-finished products are classified as inventories.
When choosing a production activity, you need to pay attention to the price factor: the product of your own production that you are going to sell should not be expensive, because it will be difficult to buy from you, and its cost should be minimal. Only under such conditions can you really count on good income.
Studying legislation
Different product categories have different requirements in different countries. In some cases, starting production requires only standard permits from fire, sanitary and technical inspection authorities. However, in most situations, product certification, licensing, documents confirming the origin of the product, or others are necessary. That is why you should carefully study the legislation of your country, as well as the regulatory framework of the states where you are going to export goods.
You should especially study activities and products that require licensing. We remember that in the Russian Federation some goods (list) of animal and plant origin are subject to accompanying veterinary documents and registration in the FSIS Mercury system.
Accounting for own production
Finished products can be valued in several cost forms:
- production cost. Includes all production costs to produce the final product.
- full cost. Consists of production costs and expenses for logistics, advertising, etc.
- retail (or negotiated) price.
In accounting, production is reflected in several accounts that collect information about costs associated directly with the process itself, auxiliary costs, indirect costs related to management and service activities, and losses from defects.
We are looking for sales markets
The search for sales markets should be started at the stage of drawing up a business plan. This will allow you to adequately assess potential sales volumes and make an informed decision on the advisability of launching production.
Product sales channels can be government agencies, large companies, medium and small segment enterprises, as well as retail points of sale. Having decided on the categories, you need to make a list of potential clients and contact them for mutually beneficial cooperation. The optimal solution would be direct contact with partners (for example, stores) - they are interested in new offers and can tell you about the pros and cons of your competitors’ products.
We establish channels for the supply of raw materials
The general principle that is recommended to be followed when purchasing raw materials is: the higher the quality and the lower the price, the better. However, in practice, profitability may be influenced by other factors in different industries. So, logistics plays a big role - the cost of delivery increases in proportion to the distance, so it may turn out that it is profitable to buy more expensively, but at a wholesale base in your city. In addition, often more expensive raw materials make it possible to significantly improve the parameters of the finished product and, accordingly, sell it with greater profit.
When contacting various suppliers, it is necessary to clarify the terms of purchase: the price of the minimum batch, the delivery procedure, returns if defects are detected, the availability of certificates and other documents confirming the quality of the product and the compliance of its characteristics with the technological cycle of your production.
Features of an invoice for construction and installation work for yourself
Currently there is no obligation to issue invoices:
The peculiarity of issuing an invoice on this basis is that when filling out lines 2, 2a, 2b, 6, 6a and 6b, the taxpayer must indicate the details of his company. Since this invoice is not transferable, such a document can be issued in one copy by registering it in the sales book, as indicated by the norms of paragraph 21 of Section II of Appendix No. 5 to Rules No. 1137.
From 04/01/2019, changes to the form of the sales book and to the form of an additional sheet of the sales book will come into force, introduced by the Decree of the Government of the Russian Federation of 01/19/2019 No. 15 “On amendments to appendices No. 3 and 5 to the Decree of the Government of the Russian Federation of December 26, 2011 No. 1137".
According to the changes, in columns 14 and 17 of the sales book the cost of sales without tax and the amount of VAT at a rate of 20% will be indicated, and in the additionally introduced columns 14a and 17a - at a rate of 18%, respectively. Similar changes have been made to the form of the additional sheet of the sales book used in VAT calculations.
Additional capital
The amount of additional capital is formed by the additional income of the enterprise due to the revaluation of non-current assets (in the case of an increase in value) or the positive difference between the nominal and selling value of the enterprise's shares. The frequency of revaluation of fixed assets is established by the accounting policy.
Share premium is possible only for an enterprise with the organizational and legal form of a joint stock company. A positive difference between the value of shares can arise both when a company is created and in the event of an increase in the size of the authorized capital.
Borrowed funds
Borrowed capital is the main source of external financing for an enterprise, and often the only one. They represent a group of borrowed funds and obligations of various types:
- bank loans;
- funds on loan;
- amounts of accounts payable.
Despite the negative impact of borrowed funds on the financial position of the company, they play an important role in the course of business and even bring benefits. Attracting funds from external sources provokes an accelerated turnover of working capital and a reduction in work in progress.
We draw up a business plan
A business plan is necessary to understand what resources will be required to implement the project, as well as to build a step-by-step algorithm for its development. In addition, it allows potential investors and partners to evaluate how viable an idea is.
A classic business plan contains the following points:
- General description of the business - field of activity, reason for choosing it, categories of clients, competitors, expected cost of the product and its justification.
- Work plan - description of the production process, required personnel, premises requirements, business registration process.
- Marketing plan – methods and channels of promotion, development of a unique advantage.
- Financial plan - calculation of capital investments at the start, monthly, depreciation expenses and profitability of the business as a whole.
Read more about drawing up a business plan.
After the listed points have been spelled out in detail, it is recommended to draw up a general brief presentation that will give an idea of the work of the future enterprise and the characteristics of the goods and/or services produced.
Reserves
The reserve capital of an enterprise is formed somewhat later than the authorized capital. After starting financial activities, the company receives a profit, which creates the amount of reserve funds. The amount of reserve capital is regulated by accounting policies. Some enterprises do not create reserves at all. Others set the interest rate according to which funds are annually transferred to the accounts of reserve funds.
Reserve own sources of funds are created in order to:
- covering unexpected losses or damages if the company does not have other means;
- payment of income to the founders in the absence of funds intended for this;
- repayment of bonds or repurchase of shares of one’s own organization.
If at the end of the year the reserve capital is not completely spent, the account balances roll over to the next year.
We continue to develop
Modern business is a fairly flexible field of activity, which is influenced by a variety of factors. The emergence of new technologies, fashion trends, tightening of legislation - any successfully operating production must adapt to these dynamics.
To keep abreast of trends, attend industry exhibitions, follow publications in specialized publications, pay attention to modernization and expansion of production, systematically releasing an increasingly advanced product.
Timely response and adjustment of strategy will allow you to achieve serious success.
Profit
After creating the authorized capital, the company begins financial activities. Own sources of funds are replenished with one more thing - profit. This is the amount that characterizes the excess of income over expenses in monetary terms. There are three types of profit: accounting, net and undistributed.
The amount of accounting profit is the total amount of income of the organization for the period under review, excluding taxes. The value is reflected in the data, but in fact the company will own a different amount.
After paying income tax and other mandatory payments, net profit is formed. The company owns this amount completely, but dividends due to the founders are deducted from it.
The funds remaining after payment of dividends constitute retained earnings, which remain in the possession of the enterprise. Retained earnings are sources of long-term financial resources.
We select and train personnel
The composition and number of employees in the team entirely depend on the specifics of production. However, in any case, you will need a qualified accountant who is able to monitor the constantly changing tax legislation and is familiar with the specifics of a particular industry, a technologist to control the production process, an equipment adjuster and sales manager, as well as a specialist responsible for the operation of the company’s website and promotion social networks. When opening a business in a foreign country, it would be useful to enlist the support of a trustworthy lawyer. Along with the direct workers, technical personnel will be required - security guards, drivers, cleaners.
The best option is if, when purchasing equipment, you make an agreement on personnel training by specialists from the unit manufacturer. This will guarantee that all technological processes will be strictly observed, and, accordingly, the quality of the product and the service life of the equipment will correspond to the declared ones.
Registering activities
Classifiers of economic activity have similar features in different countries. You need to find those that correspond to your activity in the legislation of the country you are looking for, such as in the case of a business registration form or foreign economic activity codes in your country. Regardless of whether you are going to conduct business on a domestic platform or the territory of another state, it is recommended to take advantage of qualified legal assistance from a specialist with experience in a particular field. This will guarantee that all the nuances will be taken into account, including in the event of expansion or reorganization of the enterprise.
